CHAPTER I

INTRODUCTION

1.1 Background of the Study

Global IME Bank Ltd. (GIBL) is one of the oldest and largest commercial banks in Nepal,
established in 2007 A.D under the Global IME Bank Act. It is fully owned by the non-
government of Nepal, making it a state-owned institution. With a strong nation wide presence
and a wide customer base, GIBL plays a critical role in Nepal’s banking and financial sector. As
a government owned bank, GIBL’s capital structure is relatively conservative, reflecting a
priority on financial stability, public trust, and regulatory compliance over high-risk leveraging.
Its capital structure comprises mainly equity capital contributed by the government, retained
earnings, and customer deposits, with minimal reliance on external or private debt instruments.
Maintaining a strong and well-regulated capital structure is essential for GIBL, not only to meet
its operational and developmental banking roles but also to support its public sector obligations.
Given the economic environment of Nepal and the critical role GIBL plays in channeling credit
to key sectors (like agriculture, SMEs, and infrastructure), a stable and adequately capitalized
balance sheet is vital. The capital structure of a bank like Global IME Bank Ltd. (GIBL)
typically refers to the mix of debt and equity that the bank uses to finance its operations and
growth. This structure includes common equity (like common shares), preferred equity (if
applicable), retained earnings, and various forms of debt instruments such as bonds, subordinated
debt, and other liabilities. For a bank, the capital structure is particularly important because it
directly affects its regulatory capital requirements, leverage ratio, and the cost of capital. Banks,
especially in Nepal, must comply with Basel III norms and other regulatory standards set by the
central bank (Nepal Rastra Bank in the case of Nepal). There are different tools to evaluate
financial trasactions. They are:
 Liquidity Ratio
 Debt Management Ratio
 Turnover Ratio
 Profitability Ratio

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1.2 Profit of Global IME Bank Limited (GIBL)
Global IME Bank Limited (GIBL) National Commerical Bank is fully government owned, and
the largest commercial bank in Nepal. GIBL was established on 2007 A.D under the GIBL Act.
GIBL Provides various banking services to a wide range of customers including banks, insurance
companies, industrial trading house, airlines, hotels, and many other sectors. GIBL has Nepal’s
most extensive banking network with 350 plus branches.

GIBL is one of the pioneer banks in the country, with a history of nearly a half century. Earlier
constituted under GIBL Act 2021 with the full ownership of the government of Nepal, the bank
has been running under Bank and Financial Institute Act (BAFIA) and Company Act (CA) 2063.
The bank, licensed by NRB as an ‘A’ class commercial bank of the country, has grown up as an
indispensable component of the Nepalese economy. It was the highest profit earning bank for
fiscal year 2019/20. The bank has the second highest paid up capital until the end of FY 2020/21
after agriculture development bank. It terms of deposit, the bank has collected Rs more than Rs
130 billion (FY 2020/21), which is the highest deposit of any commercial bank in Nepal.

Global IME Bank Limited is one of the pioneering banks in the Nepalese market that has carried
out Note Kosh found, Bharu Kosh Fund, NRB’s draft transaction, government transaction, and
pension fund of the Nepal government. Besides more than two dozen bank’s branches it is the
government bank. Profit is not the only motive of the bank. GIBL provides services in remote
and undeveloped areas of Nepal.

GIBL has a history of contributing for the monetization of the economy, eliminating dual
currency in the market, initiating preliminary financial literacy, and helping industrial,
commercial and financial sector of the country. With 2600 hands, it has expanded its wings in
the most in the most part of the country through multiple distribution outlets of 161 branches, 17
counters, 28 branches banking (BLB) and 72 ATMs. It has high public confidence, reflected in
the highest deposit base and growing demand for branch establishment in the various parts. The
bank with as many as 1.7 million satisfied direct customers ranging from poor to elite ones and
millions of indirect ones, has drawn important imprint in the picture of the country’s economy

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through its significant involvement in the best use of its resources to enhance the production,
income and employment opportunities.

1.3 Statement of the Problem

In practice, it is noticed that firms procure funds without much of the analysis the may cost them
an arm and the leg to survive in the competitive modern business environment for the long. Thus,
it seems to be the relevant topic discussion which tries to explore the capital structure of selected
banks in Nepal, so that the fact can be revealed whether strengthening their proper mixture in
capital structure adds to their competitive advantage. This study also will have some research
problem which will be as follows:
 What is the capital structure position of Global IME Bank Limited ?
 What is the relationship between operating profit and interest expenses to measure the
debt service capacity of the bank ?
 What is the growth condition of this Global IME Bank Limited ?

1.4 Objectives of the Study

Capital structure management decision is one of the major decision functions of financial
management. The main purpose of this study is to assess the capital structure management policy
and strategies followed by Global IME Bank Limited.

The major objective of the study is to analyze the overall capital structure management of Global
IME Bank Limited and other specific objectives are as follows:
 To examine the debt market value per share.
 To analyze the debt equity ratio market price per share.
 To identify short term loan ratio of market price per share

1.5 Significance of the Study

Bank plays a vital role for the economic development of the country. This report is prepared to
analyze the financial position of Global IME Bank limited. It also help to give the results for
the improvement of performance of the bank.

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  To help stakeholders to know the financial position of GIBL.
 To help researcher to compare the ratio of GIBL to average market ratios.

1.6 Literature Review

Literature review refers to the study of previous research and documents to find out the study gap
from the review of literature. Literature of review means reviewing research studies or other
related proposition in the related areas of the study so that all the past studies, their conclusions
and deficiencies may be known and further research can be conducted.

1.6.1 Conceptual Review

B.N. Ahuja (2021), “Financial Performance analysis is a study or relationship among the various
financial factor in business a disclosed by a single set of statement and a study of the trend of
these fact as shown in a series of statements. By establishing a strategic relationship between the
item of a balance sheet and income statements and other operative data, the financial analysis
unveils the meaning and signification of such items.”

According to R.W. Metcalf and P.H. Tatar (2022), “Financial Performance analysis is a process
of evaluating the relationship between components parts of a financial statement to obtain a
better understanding of a firm’s position and performance.”

Similarly, Khan and Jain have defined that (2023) “The ratio analysis is defined as the systematic
use of ratio to interpret the financial performance so that the strength and weakness of firm as
well as its historical performance and current financial condition can be determined.”

In the word of Van Horne (2023) “Financial ratio can be derived from the balance sheet and the
income statement. They must be analyzed on a comparative basis. Ratio may also be judged in
comparison with those of similar firms in the same line of business and when appropriate, with
an industry average and we can look to future progress in this regard.”

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A comparative study of financial performance is a basic process, which provides information on
profitability, liquidity position, earning capacity, efficiency in operation, sources and use of
capital, financial achievement and status of the companies. These information will help to
determine the extent of efficiency and effectiveness of the company in respect of deploying
financial resources in the profitable manner.

Profitability is a measure of firm’s efficiency (Khan & Jain, 2023). It is also a control measure of
the earning power of a firm as well as operating efficiency. Weston & Copland (2024) described
profitability as net result of a large number of policies and decisions. Ratios are used to measure
profitability and these give final answers about how effectively the firm is being managed.
Therefore, management, creditors and owner of the company are also interested in the
profitability ratio of the firm (Pandey, 2024).

Lippman and McCall (2022) define asset liquidity as the time it takes to sell an asset or convert it
into cash. They argue that when using the time to determine an asset’s liquidity it must be clear
what the length of time is and how to measure it, so it will be able to compute liquidity. The
length of time is influenced by four factors. First is the amount of bidders, for it will take longer
to locate a buyer when the number of sellers is larger than buyers. Second, when the transfer of
the legal title has many obstructions, such as the time it takes to exchange legal ownership of the
asset and the right of disposing the asset, selling the asset will take relatively long. Moreover, the
cost for holding assets determines how fast an asset is sold. Finally, the price at which the seller
is willing to sell.

Liquidity is also defined as the position or capability of a bank to meet the current obligation of
customers such as payment of cheque. Payment of demand drafts, disbursement of approved loan
etc. Bank needs to maintain some reasonable level of liquidity to fulfill different commitments
such as provide money to depositors when they demand for administrative expenses, for
maintaining cash bank’s capacity to pay cash in exchange of deposits. Liquidity is crucial in the
business like banking. Because if the bank has high liquidity, it can no earn a desire profit and if
the bank has the shortfall of the liquidity it cannot satisfy its customers. Inadequate liquidity may
lead to collapse of the banks while excess liquidity is detrimental to bank’s profitability. In order

5
to remove demerits associated with maintaining inadequate and excess liquidity, banks should
maintain an optimum level of liquidity. This possible only when bank’s liquidity needs is
correctly predicted. Prediction covers in present outflows of liquidity. If prediction shows more
outflows, bank should be prepared to cover the short fall by borrowing or by liquidating assets. If
inflow greater than outflow, bank should plan where to invest so that income can be increase.
Banks attach great importance short term and long term predictions. Prediction of liquidity need
should be in the firm of primary and secondary reserves so that bank generates income and at the
same time does not compromise to liquidity . Nepal Rastra Bank, as the central bank of Nepal,
had made it mandatory for commercial bankers to maintain liquidity as under:
Balance at Nepal Rastra bank – 7% current and saving deposit liabilities.
4.5% of fixed deposit liabilities.
Cash in vault – 2 % of deposit liabilities.

1.6.2 Review of Empirical Research

Prior to this study, the several researchers have found various studies regarding financial
performance of commercial and joint venture banks. In this study, only relevant subject maters
are reviewed which are as follows: -

A thesis conduct by Shakya , Suman (2021) in “Financial Performance of Nepal SBI Bank
Limited And Everest Bank Limited.” analyzed different ratio of NSBIBL and EBL for the period
of five years till fiscal year 2008. Here, in some cases the liquidity position of EBL is slightly
stronger where as in some cases the ratio of NSBIBL is higher. It concludes that liquidity
position of these two banks is sound. NBBL has better utilization of resource in income
generating activity than EBL. They are on decreasing trends while interest earned to total assets
and return or net worth ratio of EBL is better than NSBIBL. It seems overall profitability
position of EBL is better than NSBIBL and both banks are highly leveraged.”

Kishor Poudel (2023)., in his thesis paper “Liquidity and investment position of Joint Venture
Commercial Banks in Nepal” has made an attempt to evaluate liquidity and investment of joint
venture banks special reference to Everest Bank Ltd and NABIL Bank Ltd. He has concluded
that liquidity position of EBL is better than that of NABIL’s. Growth rate of investment is

6
higher in EBL than NABIL. He further found that the banks do not have constant and consistent
liquidity and investment policy. There is no standard and uniform rate or ratio for maintaining
liquid assets by the commercial banks. A commercial bank at its own judgment may decide to
maintain an appropriate level of liquid assets. So he has recommended exploring such investment
and to increase its investment on share and debenture and the bank should have laid down policy
for timely review of portfolio and to maintain risk and return.

Mr. Pragun Shrestha (2024) in his study, “A comparative Analysis of Financial performance
of the Selected commercial Banks”, Concluded that many of the banks are of the view that
political instability in the country is mainly responsible for the decline of the lending
opportunities. Few banks ascribed it to the economic crisis that occurred in Asia pacific region.
No one felt that higher rates on interest on lending to be a major factor. At the some time it
should target not only the urban sector, it should go to the rural sector also. They have to explore
all the potential sectors like tourism etc. in order to generate high rate of profits.

Mr. Gurung’s (2020) Study on “A Financial Study of Joint Venture Banks in Nepal”. A
Comparative Study of GIBL and NIBL. In this study, he has analyzed financial position of
the banks measuring various ratios to elaborate the financial performance. The liquidity,
profitability and dividend payout ratio of two banks are on favourable position. But NIBL seems
to be slightly better position in terms of liquidity, profitability and capital structure compared to
the GIBL. In this evidence he has concluded that the NIBL promises a better future than GIBL.

1.7 Research Methodology

Research methodology is the description of the procedures followed while collecting the
necessary data and information needed for the research work. It refers how the data collected and
which source the researcher has used for getting the data. As this research entirely considers
about the ratio analysis of Global IME Bank Limited.

1.7.1 Research Design

It is the plan, structured and strategy of investigation conceived so as to obtain answer to
research question and to control variance. Research Design indicates the plan of action to be

7
carried out in connection with proposed research work. It is purely and simply the framework or
plan for a study that guides the collection and analysis of data. A true research design is
concerned with various steps to collect the data for analysis and draw a relevant conclusion. It is
arrangement of condition for collection and analysis of data that aims to combine relevance to
the research purpose with economy in producer. To achieve the objective of this study,
descriptive and analytical research design has been used. Some financial and statistical tools
have been applied to examine ratio analysis of Global IME Bank Limited.

1.7.2 Population and Sample

There are altogether 28 commercial banks functioning in the country and most of their stocks are
traded actively in the stock market. In this study, NABIL’s investment policies have been
compared with that of SBI bank. Among them NABIL bank and SBI bank of Nepal are
undertaken for study. Their data relating to financial ratios are studied and compared .

1.7.3 Sources of Data and Data collection

The report is mainly based on secondary data with negligible information and data collected
from primary sources. The data required for the analysis are directly obtained from the balance
sheet and P\L account of concerned bank’s annual reports. Supplementary data and information
are collected from number of institutions and regulating authorities like NRB, SEBON, NEPSE,
Ministry of Finance, and budget speech of different fiscal years and economic survey.

All the secondary data are complied, processed and tabulated in the time series as per the need
and objectives of the study. Likewise various data and information are collected from the
economic journals, periodicals, bulletins, magazines and other published & unpublished reports
and documents from various sources. Formal and informal talks with the concerned authorities of
the banks are also very helpful to obtain the additional information of the related problem.

1.7.4 Data Processing and Presentation

Data obtained from the, various sources cannot be directly used in their original form further
they need to be verified and simplified for the purpose of analysis. Data information, figure and

8
facts so obtained need to be checked, rechecked edited and tabulated for computation. According
to the nature of data, they have been inserted in meaningful tables, which will be shown in
appendix. Homogenous data will be sorted in one table and similarly various tables will be
prepared in understandable manner odd data excluded from the table. Using financial and
statistical tools will be analyzed and interpreted.

1.8 Limitation of the Study

No work is this world is perfect. In order to study deeply about any topic of any sector of an
organization, there should not be any time, cost and resources barries. But according to the
course of study of our level, we have to complete the report on the selection topic with a lot of
limitation regarding time, cost and resource. Thus, this fieldwork survey has been prepared with
a lot of limitaion and varies factor are being ignored. This fieldwork report also suffers certain
limitaions which are listed below:
 Large sample are not taken for the study because of short period of time.
 The research topic can't be founded that researched by anybody else. Therefore it is
difficult to cover whole study
 Secondary data are used for report.
 This study has covered only five year data.
 It is academic research for partial fulfillment of Bachelor Degree.

1.9 Organization of the study

The report on the study of Capital structure of Global IME Bank Limited as per the requirement
of the thesis for Bachelor of Business Studies (BBS) 4th year programme. The study has three
pillar supported by five years of data. Each chapter centers of specific objectives. They are as
follows:

Chapter – I: Introduction
This chapter describes the background of the study, Statement of the problem, Objectives of the
study, significance of the study, literature review and research methodology, limitation of the
study and Organization of the Study.

9
Chapter – II: Results and Analysis
This chapter analyses the data related with study and presents the findings of the study and also
command briefly on them. Data processing, data analysis and interpretation are given in this
chapter and there is use of diagram.

Chapter – III: Summary and Conclusions

This chapter is devoted to the conclusions of the research, conclusion derived on the basis of data
analyzed.

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 CHAPTER II
RESULTS AND ANALYSIS

2.1 Presentation and Analysis of Data

Presentation and analysis of data means to show the accurate data and perform its presentation
clearly or informatively. The main aim of this chapter is presentation and analysis of data
according to research method to attain the objective of this study. In this chapter, an attempt has
been made to analyze the financial performance of GIBL for its operational period of five years
that is 2019/20 to 2023/24. The data for this study are presented in tabular form and are analyzed
with the help of financial tool i.e. financial analysis which are described in chapter 3.

2.1.1 Liquidity Ratio

Liquidity refers to the solvency of the firm overall financial position. The following ratio is used
to measure the liquidity position of GIBL with help of financial data of pass five years of the
bank.

Current Ratio
The ratio, one of the most commonly cited financial ratio, measures the firms ability to meet its
short term obligations. It is expressed as follows:
Current Assets
Current Ratio :-
Current Liabilities

Table No. 1: Tabulation of Current Ratio

Fiscal Year Current Assets Current Liabilities Ratio
2019/20 41588 37555 1.11
2020/21 45550 41014 1.11
2021/22 53255 48236 1.10
2022/23 64843 58978 1.10
2023/24 65115 57161 1.14

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Figure No.1: Current Ratio
70000

60000

50000

40000

Current Assets
30000
Current Liabilities
Ratio
20000

10000

0
2019/20 2020/21 2021/22 2022/23 2023/24

Fiscal Year

The above table no. 1 and figure no. 1 shows that the current ratio of GIBL has always exceeded
one that means current assets of GIBL have always exceeded current liabilities for the study
period of 2019/20 to 2023/24. The bank has the highest current ratio of 1.14 in 2023/24 and
lowest current ratio of 1.10 in 2021/22 and 2022/23 with an average current ratio of 1.11 during
the study period. In general, it can be said that the bank is able to short-term obligations.

2.1.2 Profitability Ratio

Profitability is the mirror of success for every commercial bank. There are many measures of
profitability. Each relates the returns of the firm to its sales, assets, and equity. The profitability
ratios are calculated to measures the operating efficiency.

A. Net Profit margin

Net profit margin is the ratio between net profit and operating income. It shows the operating
efficiency of generating net income per operating income. It is calculated as:
Net Profit
Net profit margin :-
Total Operating Income

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Following table shows the net profit to total deposit ratios of GIBL from FY 2019/20 to 2023/24.

Table No. 2 : Tabulation of Net profit Margin

Fiscal Year Net Profit Operating Income Ratio (%)
2019/20 1169 2638 44.31
2020/21 1218 2777 43.86
2021/22 1337 2913 45.9
2022/23 1290 2928 44.05
2023/24 1292 2885 44.78

Figure No. 2 : Net Profit Margin

3500

3000

2500

2000

1500

1000

500

0
2019/20 2020/21 2021/22 2022/23 2023/24

Net Profit Operating Income Ratio (%)

The above table no. 2 and figure no. 2 shows that net profit margin of GIBL varies from
maximum of 45.90% in 2021/22 to the minimum of 43.86% in FY 2020/21 with average of
44.59% during the study period of five years. The analysis indicates that the net profit margin is
fluctuating over observation period.

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B. Net Operating Profit to Total Assets Ratio
Net operating profit to total assets ratio is useful to measure the profitability ratio before interest
and taxes to all financial resources invested in the bank’s assets. This ratio is calculated as:
Net Operating Profit
Net Operating Profit to Total Assets Ratio:-
Total Assets

Following table shows the net operating profit to total ratios of GIBL from 2019/20 to 2023/24.

Table No. 3: Tabulation of Net Operating Profit to Total Assets Ratio

Fiscal year Net Operating Profit Total Assets Ratio (%)
2019/20 1694 41677 4.06
2020/21 1862 45631 4.08
2021/22 1979 53324 3.71
2022/23 1827 64927 2.81
2023/24 1701 65186 3.35
Average 1812.6 54149 3.35

Figure No. 3: Net Operating Profit to Total Assets Ratio

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 4.5

3.5

2.5

2 Ratio (%)
Column1
1.5 Column2

0.5

0
2019/20 2020/21 2021/22 2022/23 2023/24

Fiscal Year

The above table no. 3 and figure no. 3 shows that net operating profit to total assets of GIBL
varies from maximum of 4.08% in FY 2020/21 to the minimum of 2.61% in FY 2019/20 with an
average of 3.35% during the study period of 5 years. The analysis indicates that the net operating
profit to total assets shows increasing trend in first year but decreasing trend in final years of
observation period.

C. Return on Assets Ratio

The ratio is a useful measurement of the profitability of all financial capital resources invested
in the banks assets . It is calculated as:
Net Profit
ROA:-
Total Assets

Following table shows the return on assets ratios of GIBL from FY 2019/20 to 2023/24.

Table No. 4: Tabulation of Return on assets ratio

Fiscal Year Net Profit Total Assets Ratio (%)

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 2019/20 1169 41677 2.80

2020/21 1218 45631 2.67

2021/22 1337 53324 2.51

2022/23 1290 64927 1.99

2023/24 1292 65186 1.98

Average 1261.2 54149 2.33

Figure No. 4: Return on assets ratio

3
2.8
2.67
2.5 2.51

2 1.99 1.98

1.5

0.5

0
2019/20 2020/21 2021/22 2022/23 2023/24

Fiscal Year

Ratio (%) Column1 Column2

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The above table no. 4 and figure no. 4 shows the return on assets ratio of GIBL varies from
maximum of 2.80% in FY 2019/20 to the minimum of 1.98% in FY 2023/24 with an average of
2.33% during the study period of 5 year. The analysis indicates that the net operating profit to
total assets shows decreasing trend over the observation period.

D. Return on Equity
The return on equity measures the return on the owner’s investment in the bank. It is calculated
as follows:
Net Income
ROE:-
Total Equity

Following table shows the return on equity ratios of GIBL from FY 2019/20 to 2023/24.
Table No. 5: Tabulation of Return on Equity
Fiscal Year Net Profit Total Equity Ratio (%)
2019/20 1169 4122 28.36
2020/21 1218 4618 26.37
2021/22 1337 5088 26.28
2022/23 1290 5949 21.68
2023/24 1292 7524 17.17
Average 1261.2 5460.2 23.10

Figure No. 5: Return on Equity

17
 30
28.36
26.37 26.28
25

21.68
20

17.17
15

10

0
2019/20 2020/21 2021/22 2022/23 2023/24

Ratio (%) Column1 Column2

In the above table no. 5 and figure no. 5 shows the net profit to total equity ratio (ROE) of GIBL
varies from maximum of 28.36% in year 2019/20 to the minimum of 17.17% during the study
period of 5 years . The analysis indicates that ROE of GIBL shows decreasing trend over the
observation period. Decreasing trend is unfavorable for the bank.
2.1.3 Debt Management Ratio
Debt management ratio or leverage ratio measures the proportion of outsider’s capital in
financing the firms assets, and are calculated by establishing relationships between borrowed
capital and equity capital. A firm should have a strong short-term liquidity as well as long-term
financial position. The following ratio is used to measure the debt management ratio.

A. Debt Ratio
Debt ratio shows the relationship between creditors funds and owners capital. This ratio is
calculated by dividing the total debt of the bank by its total assets, which is presented below:

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 Total debt
Debt ratio:-
Total assets

Table No. 6: Tabulation of Debt to total assets ratio

Fiscal Year Total Debt Total assets Ratio (%)

2019/20 37555 41677 90.11

2020/21 41014 45631 89.88

2021/22 48236 53324 90.46

2022/23 58978 64927 90.84

2023/24 57661 65186 88.46

Average 48688.8 54149 89.99

Figure No. 6: Debt to total assets ratio

19
 91.5

91 90.84
90.46
90.5
90.11
90 89.88

89.5

89
88.46
88.5

88

87.5

87
2019/20 2020/21 2021/22 2022/23 2023/24

Fiscal Year

Ratio (%) Column1 Column2

The above table no. 6 and figure no. 6 shows the debt to total assets ratio of GIBL varies from
maximum of 90.84% in FY 2022/23 to the minimum of 88.46% in FY 2023/24 with an average
of 89.99% during the study period of 5 years. The analysis indicates that an average of 89.99%
of the total assets of the bank financed through debt capital.

B. Debt to Equity Ratio

The debt to equity ratio indicates the relationship between the long term funds provides by
creditors and those provided by the firms owners. This ratio is calculated by dividing the total
debt of the bank by its total equity, which is presented below:
Total debt
Debt to equity ratio:-
Total Equity

Following table shows the debt to equity ratios of GIBL from FY 2019/20 to 2023/24.
Table No. 7: Tabulation of Debt to equity ratio

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 Fiscal Year Total Debt Total equity Ratio (%)
2019/20 37555 4122 9.11
2020/21 41014 4618 8.88
2021/22 48236 5088 9.48
2022/23 58978 5949 9.91
2023/24 57661 7524 7.66
Average 48688.8 5460.2 8.92

Figure No. 7: Debt to Equity Ratio

12

9.91
10 9.48
9.11 8.88

8 7.66

0
2019/20 2020/21 2021/22 2022/23 2023/24

Ratio (%) Column1 Column2

The above table no. 7 and figure no. 7 shows debt to equity ratio varies from maximum of 9.91
times in FY 2022/23 to minimum of 7.66 times in the years 2023/24 with an average of 8.92
times during the study period of 5 years. The analysis indicates that the bank has the high debt to
equity ratio, which means the creditors have invested more in the bank than owners.

21
2.1.4 Activity Ratio
Activity ratio is also known as assets management ratio or efficiency ratios or turnover ratios.
These ratios provide the measure for how effectively the firm’s assets are being managed.
Activity ratios include the following:

A. Total Assets Turnover Ratio

It measures the overall utilization of firms total assets. It includes current assets, fixed assets and
investment. It is calculated as:
Total operating income
Total Assets turnover ratio:-
Total assets

Following table shows the total assets turnover ratios of GIBL from FY 2019/20 to 2023/24.

Table No. 8: Tabulation of Total assets turnover ratio

Fiscal Year Operating Income Total assets Ratio (Times)

2019/20 2638 41677 0.06

2020/21 2777 45631 0.06

2021/22 2913 53324 0.05

2022/23 2928 64927 0.04

2023/24 2885 65186 0.04

Average 2303.8 54149 0.04

22
Figure No. 8: Total assets turnover ratio

0.07

0.06 0.06
0.06

0.05
0.05

0.04 0.04
0.04

0.03

0.02

0.01

0
2019/20 2020/21 2021/22 2022/23 2023/24

Ratio (Times) Column1 Column2

The above table no. 8 and figure no. 8 shows total assets turnover ratio of GIBL varies from
maximum of 0.06 times in FY 2019/20 and 2020/21 to minimum of 0.04 times in year 2022/23
and 2023/24 with an average of 0.04 times during the study period of 5 years. The analysis
indicates that the banks total assets turnover ratio is declining trend which is unprofitable for
bank.

B. Fixed assets turnover ratio

It measures how effectively the firms uses its fixed assets like plant and equipment, building and
other long term assets to generate income. It is calculated as:
Total operating income
Fixed assets turnover ratio:- assets ¿
Net ¿

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Following table shows the debt fixed assets turnover ratios of GIBL from FY 2019/20 to
2023/24.
Table No. 9: Tabulation of Fixed assets turnover ratio
Fiscal Year Operating Income Net Fixed assets Ratio (Times)
2019/20 2638 90 29.31
2020/21 2777 82 33.87
2021/22 2913 69 42.22
2022/23 2928 84 34.86
2023/24 2885 71 40.64
Average 2828.2 79.2 35.71

Figure No. 9: Fixed assets turnover ratio

45 42.22
40.64

40
34.86
33.87
35
29.31
30

25

20

15

10

0
2019/20 2020/21 2021/22 2022/23 2023/24

Ratio (Times) Column1 Column2

The above table no. 9 and figure no. 9 shows the net fixed assets turnover ratio of GIBL varies
from maximum of 42.22 times in FY 2021/22 to minimum of 29.31 times in year 2019/20 with

24
an average of 35.71 times during the study period of 5 years. The analysis indicates that the
banks fixed assets turnover ratio is fluctuating over the observation period.
2.2 Major Finding
The following are the findings of the above analysis:
The bank has the highest current ratio of 1.14 in 2023/24 and lowest current ratio of 1.10 in
2021/22 and 2022/23 with an average current ratio of 1.11 during the study period from 2019/20
to 2023/24. In general, it can be said that the bank is able to meet the short-term obligations and
has sound liquidity position.

The net profit margin of GIBL varies from maximum of 45.90% in FY 2021/22 to the minimum
of 43.86% in FY 2020/21 with average of 44.59% during the study period of five years. The
analysis indicates that the net profit margin is fluctuating over observation period.

The net operating profit to total assets of GIBL varies from maximum of 4.08% in FY 2020/21 to
the minimum of 2.61% in FY 2023/24 with an average of 3.35% during the study period of 5
years. The analysis indicates that the net operating profit to total assets shows increasing trend in
first year but decreasing trend in final years of observation period.

The return on assets ratio of GIBL varies from maximum of 2.80% in FY 2019/20 to the
minimum of 1.98% in FY 2023/24 with an average of 2.33% during the study period of 5 years.
The analysis indicates that the net operating profit to total assets shows decreasing trend over the
observation period.

The net profit to total equity ratio (ROE) of GIBL varies from maximum of 28.36% in year
2019/20 to the minimum of 17.17% during the study period of 5 years. The analysis indicates
that ROE of GIBL shows decreasing trend over the observation period. Decreasing trend is
unfavorable for the bank.

The debt to total assets ratio of GIBL varies from maximum of 90.84% in FY 2022/23 to the
minimum of 88.46% in FY 2023/24 with an average of 89.99% during the study period of 5

25
years. The analysis indicates that an average of 89.99% of the total assets of the bank financed
through debt capital.

The debt to equity ratio varies from maximum of 9.91 times in FY 2022/23 to minimum of 7.66
times in year 2023/24 with an average of 8.92 times during the study period of 5 years. The
analysis indicates that the bank has the high debt to equity ratio, which means the creditors have
invested more in the bank than owners.

The total assets turnover ratio of GIBL varies from maximum of 0.06 times in FY 2019/20 and
2020/21 to minimum of 0.04 times in year 2022/23 and 2023/24 with an average of 0.04 times
during the study period of 5 years. The analysis indicates that the bank’s total assets turnover
ratio is declining trend which is unprofitable for bank.

26
 CHAPTER III
SUMMARY AND CONCLUSION

This is the concluding chapter of the study. This chapter is divided into three sections: Summary
and Conclusions. In this chapter, the study is summarized in brief. In the last section of this
chapter, which are useful to stakeholders and to concerned companies as well. They can use
these to take some corrective actions to draw decisions.

3.1 Summary
In this study, to analyze about capital structure, two commercial banks have been chosen. These
banks are Bank of Kathmandu Ltd. and Himalayan Bank Ltd. Both banks are listed in NEPSE.
To make the study more reliable, the whole study has been divided into five chapters. The
summaries of each chapter are presented following.

First chapter: First chapter starts with historical background of the study. In this chapter an
introduction to banking industry in Nepal, introduction of the banks is selected for the study,
description of the capital structure is presented briefly. This study endeavors to evaluate capital
structure of commercial banks with reference to Bank of Kathmandu Ltd. and Himalayan Bank
Ltd. The main questions presented as the 'focus of the study are what is the condition of capital
structure of the commercial banks of Nepal ? Whether or not they are using an appropriate
financial mix ? If not, what may be the suggested to improve or to make appropriate capital
structure ? Does capital structure help to maximize the value of the firm in the context of
Nepalese firms ? The statement of the problems deals with the effect of the capital structure on
the growth of the firm, the extent to which the capital structure policy is followed by the
commercial banks, and the main problems faced by the commercial banks in developing and
implementing the capital structure.

The main objectives of the study presented are to evaluate the role of capital structure on the
growth of the commercial banks in Nepal, to analyze the effectiveness and efficiency of capital

27
structure of the commercial banks in Nepal and to analyze the relationship of capital structure
with variables such as earning per share, dividend per share and net worth.

Finally, "significance of the study" and "limitations of the study" are also presented in the first
chapter.

Second chapter: In this chapter various books, research studies and articles concerned with the
capital structure have been reviewed and presented as the review of literature to make the
concept of capital structure more clear. Capital structure theories such as NI approach, NOI
approach, MM model and other theoretical approaches to establish appropriate capital structure
are described in this chapter. Review of different management journals, articles as well as related
Nepalese studies have been presented as well.

Third chapter: In this chapter the steps to adopt realistic study needed for the researches have
been presented. The methodology, researcher can use to get appropriate guidelines and
knowledge about the various sequential steps to adopt a systematic analysis has been explained
in this chapter. Most of the data used in this study are secondary in nature that is annual reports
provided by concerned companies. Five years data are taken as sample years and are analyzed by
using financial and statistical tools such as ratio analysis, leverage analysis, capital structure
analysis, correlation analysis, probable error etc. Methods, which the study is going to use, are
exhibited in this chapter.

Fourth chapter: The data mentioned in the third chapter are presented and analyzed in this
chapter using methods mentioned in the chapter third above such as ratios, leverage analysis,
correlations, and probable errors and capital structure analysis. Detail calculations presented in
this chapter are shown as appendix, which is presented after fifth chapter.

Fifth chapter: In this chapter summary of the study are presented in brief to understand the
whole get about of the study instantly after which conclusion of the study are presented.

28
3.2 Conclusion
In this study, comparison among concerned banks has been done taking data of these banks. To
evaluate the capital structure, different types of tools and technique are used. The following
conclusion can be drawn.

Long term debt to total debt ratio shows that all of the sample banks have fluctuating trend of
long term debt to total debt ratio. In average BOKL has 26.07% of average long-term debt to
total debt ratio, which means that about 73.93% of the total debt is contributed by current
Liabilities. Similarly, HBL has the average ratio of 23.88 % which means that about 76.12% of
the total debt is contributed by current liabilities.

Long term debt to capital employed ratio highlights the portion of fund financed by long term
debt in the capital employed by the firm. The data shows BOKL has the average ratio of 77%.
Similarly, HBL has the average ratio of 79%. We can conclude that both of the companies have
employed large amount of long term debt to capital employed and among the two in average
HBL has employed more of the long term debt in the capital than the BOKL.

Debt to total assets ratio express the relationship between creditors fund and total assets. The
debt ratio or debt to total assets ratio of BOKL and HBL are 0.24 and 0.23 respectively. It means
BOKL has used more long term debt for financing in comparison to HBL.

Debt equity ratio shows in the BOKL the creditors have 3.43 times claims on the assets, which is
very lowest among the two banks. In case of HBL, the claim of creditors is 3.74 times, which is
higher than that of owners of the company.

Interest coverage ratio shows how many times the interest charges are covered by EBIT out of
which they will be paid. The conclusion drawn by the study is the average interest coverage ratio
of BOKL is 1.97 and HBL is 1.98, which shows that both banks are able to cover the interest but
as the higher interest coverage ratio is better. HBL seems to have higher ratio than BOKL.

29
In regards of the comparative position of return on total assets of the two commercial banks
BOKL seems to have the highest return of 1.65 in comparison of 1.39 of HBL. The return on
shareholder’s equity of BOKL shows the average ratio of 23.34% and it has fluctuating trend.
The data indicates that BOKL has instable return. Similarly, HBL has decreasing trend and the
area of 22.79%. By analyzing the average ROSHE, we can conclude that return earned by the
shareholders equity of HBL is least i.e. 22.79 and the return of BOKL is highest i.e. 23.34%. So,
we can conclude that both companies should apply suitable action to increase ROSHE.

Earning per share of an organization shows the strength of the share in the market. The average
earning per share of BOKL is Rs. 40.94. Similarly, the average earning per share of HBL is Rs.
55.92. Among the two, HBL has the highest earning per share.

Dividend per share shows the amount of earning distributed to ordinary shareholders. It shows
the efficiency and effectiveness of the company. The investors invest in the company paying
adequate amount of dividend. The average dividend per share of BOKL is Rs. 13.02. Similarly,
HBL shows an average DPS of Rs. 16.32. Among the two, HBL has paid the highest dividend.

Net income approach is the dependent hypotheses of capital structure, which states with the
increased use of leverage, overall cost of capital declines and the total value of the firm rise.
According to this hypothesis the firm with the highest value and the least cost of capitalization
rate is considered to have the best capital structure. The average value of firm of BOKL and
HBL are 8995.41 and 17469.85 respectively and the average costs of capitalization rate are
8.49% and 7.99% respectively. From the calculation it can be concluded that HBL has the better
capital structure in comparison with BOKL.

Net operating income is the independent hypothesis of the capital structure decision of the firm.
According to this hypothesis, any change in the leverage will not lead to any change in the total
value of the firm and market price of the share, as the overall cost of capital is independent of the
degree of leverage. From the position of average, we can conclude that HBL has lesser Ke i.e.
7.1% than BOKL i.e. 7.9%.

30
When the company employs debt or other fund carrying fixed charges in the capital structure,
financial leverage exists. From the calculations, we can conclude that BOKL is using high long
term debt and so is bearing the highest risk among the two. But it can also be concluded it is
taking corrective actions to decrease its risk since the trend is decreasing. HBL has moderate
financial risk.

Considering the correlation coefficient and probability error calculated the correlation
coefficients are positive and PE is less than the correlation coefficient which concluded that the
total debt and shareholder's equity deviate in the same direction and relationship between total
debt and correlation efficient are significant. Likewise in the case of EBIT and interest the
correlation coefficients are positive and significant in a relationship.

In the case of long term debt and earning per share, the correlation coefficient of BOKL and
HBL are positive which concluded that the positive correlation exists between the two variables.
Since PE in case of BOKL is less than correlation which means relationship between LTD and
EPS is significant but PE in case of HBL is greater than correlation, the relationship between
LTD and EPS is insignificant.

In the case of EBIT and DPS, BOKL shows negative correlation and PE is greater which shows
insignificant relationship but in the case of HBL correlation is positive and PE is greater than
correlation which shows insignificant relationship.

31
 BIBLIOGRAPHY

 Adhikari, Nanda Kumar, “Financial Management Theory and Practices”, Sukunda Pustak
Prakashan, Kathmandu, 2023.
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Kathmandu, 2019.
 Baskin, J.V., “An Empirical Investigation of the Pecking Order Hypothesis”, Financial
management, Spring, 2022.
 Gitman Lawrence J., “Principle of Management”, Harper and Row Publisher, New York,
5th edition 2021.
 Gupta, S.C., “Fundamental of Statistics”, Himalayan Publishing House, New Delhi,
2019.
 Khan,M.Y. and Jain P.K.,”Financial management”, Ninth RC Print 2023.
 Pandey, I.M., “Financial Management”, Vikash Publishing House [Link], New Delhi,
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 Pradhan, Surendra, “Basic of Financial Management”, Educational Enterprises [Link],
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 Van Horne, James C., “Financial Management and Policy”, Prentice Hall of India Pvt.
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 Vaidya, Shakespare, Money and Banking, Taleju Prakashan, Kathmandu, 2022.
 Weston J.F. and Copeland, T.E., “Managerial Finance, Ninth Edition”, The Dryden Press,
2024.

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APPENDIX-I

33
APPENDIX-II

34
APPENDIX-III

35